00:00What went wrong because their first quarter results were so strong. It seemed like that issued in this new period
00:05of optimism that they have turned things around, that they are catching up.
00:08So let's do some tone setting. I don't think anything went horribly wrong as evidenced by the fact that the
00:12markets have opened. The flat stock is pretty much flat.
00:15But there was a bit of an expectation mismatch precisely for the reason you just mentioned.
00:19When you look at the Q1 numbers, when you look at the fact that they posted 13 percent return on
00:23tangible equity,
00:24when you come into an important investor day, after the CEO has said that they're through the 90 percent of
00:31the work tied to their regulatory challenges,
00:33the back office issues, really the toughest part of the transformation work that led to Jane Frazier becoming CEO of
00:41Citigroup in March 2021.
00:42They are through most of that. So the hope was now that you've given us a print of a 13
00:47percent return on tangible equity,
00:49you can lift your return expectations. And that's what investors were looking for.
00:53That's what analysts were looking for. But the fact that they're saying that they'll get to this 14 percent to
00:5815 percent target by the end of the decade,
01:00by 2031, that doesn't feel, that doesn't set an exuberant tone, if nothing else.
01:07Because look at their immediate peers. J.P. Morgan is already sitting at that figure.
01:11Morgan Stanley is already sitting at that figure. And if you look at one of the more recent examples,
01:15when you go back to Goldman Sachs to the 21, 22, 23 time period, they were in a bit of
01:20a difficult spot.
01:21A lot of their investments and balance sheets were not performing well.
01:25They had that consumer banking misadventure. And at that time, the bank said it does have a medium term target
01:29of mid-teen returns.
01:31And it has already achieved that. The hope was that Citigroup can keep that same pace.
01:36Perhaps it's a way to under-promise and over-deliver.
01:39But the market would much rather that you over-promise and over-deliver.
01:43That's maybe a tall order, I guess, especially for Citi.
01:46So if they've done the bulk of the transformation, they've done the back office, all of the various IT issues
01:52they have,
01:52what is left? What is left of the kinks that they're still working through?
01:56It shows you the steep grade of the transformation.
01:59When you look at a Bank of America report that just came out before this investor day,
02:03they talked about the fact that when Jane Frazier became CEO, Citi had an F grade.
02:07Her transformation and the work she's put in and the team behind her, the work that they have put in,
02:13has meant that now you can give Citi perhaps a C grade.
02:15So she's gone from F to C.
02:17But the challenge to go from a C grade to an A grade student, like some of their peers right
02:22now,
02:23is a much harder journey.
02:24And perhaps their more muted targets that they're setting today is a reflection of that fact.
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